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Ford CFO Sees Turning Point In Europe (Fingers Crossed)

The economic news out of Europe has been miserable for so long that Ford MotorFord Motor‘s slightly more optimistic tone for the region almost slipped by me this morning as I dug into Ford’s $1.6 billion in first-quarter net income.

“There’s maybe – maybe – some suggestions that we may be bottoming out in Europe,” Robert Shanks, Ford’s chief financial officer, told me in an interview. ”It’s not time to get the balloons out, but there are economic indicators that suggest we could start tilting upward by the end of the year, or early next year.”

The would be great news not just for Ford, which expects to lose about $2 billion in Europe this year, but also for other global automakers which have been grappling with the lowest sales in 20 years and a devastating price war. Just last month, Volkswagen AG Chief Executive Martin Winterkorn warned that market conditions were worsening in Europe and that 2013 would be a “year of truth” for the global auto industry.

So what does Shanks see that others haven’t yet spotted? He pointed to tiny improvements in economic indicators such as consumer confidence, manufacturing and exports as “proof points” that Europe’s economic woes might be starting to stabilize. For the auto industry, in particular, he pointed to “peripheral markets” like Spain, Portugal and Greece, where auto sales recently have flattened, after collapsing as much as 50 percent over the last couple of years.

Ford, he says, is very satisfied with the pace of its turnaround effort in Europe, especially given how long it took to get its North American recovery plan off the ground in 2005 and 2006. “For Europe to be off to such a good start is very encouraging,” he said.

Despite a $462 million loss in Europe in the quarter, Shanks says Ford’s new wave of products like the Kuga SUV and Tourneo van are being well-received. Ford cut back on rental and short-term sales during the quarter, resulting in an overall market share loss of 0.8%, but its share of the retail market in major Western European markets is up, Shanks said. And while dealers tightened up inventories last year as sales slowed, they are now anxious to refill their lots, boosting orders by 30% from a year ago, he said. That could mean a nice bump in sales later in the year — or it could mean another round of lot-clearing discounts that will hurt profits.

There is still plenty of work to do in Europe. Ford needs to further reduce its costs, including plans to restructure its manufacturing footprint within the region. The company is negotiating with unions to close two facilities in the U.K. by mid-year and recently struck a deal with unions to close an assembly plant in Genk, Belgium. Further cuts aren’t in the works, but Shanks said the company will be monitoring the situation carefully.

It’s hard to read the tea leaves in all this. Ford says it hasn’t changed its outlook for a $2 billion loss in Europe this year. And while there are some signs of stabilization, Shanks says the economy there remains uncertain.

All the more important that Ford is piling up profits in North America, where sales of F-series pickup trucks loaded with luxury options and pricey-but-fuel-efficient engines are padding Ford’s coffers. The same goes for Ford’s newly redesigned Fusion sedan and Escape crossover, which are performing well out of the gate. Ford earned a record $2.4 billion before taxes in North America, and posted an impressive 11 percent operating margin.

But South America is proving difficult for Ford, largely because of currency exchange issues, and the company is spending heavily to catch up in China, so profits remain elusive there. Meanwhile, its ongoing struggle to rebuild Lincoln has left the company without a strong global luxury brand.

Until these issues are resolved, Shanks can only hope that North America keeps on truckin’.

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